NSE Trading Halt: Finance Ministry Asks SEBI to Share Its Findings on NSE’s Root Cause Analysis
Days after finance minister (FM) Nirmala Sitharaman spoke about trading halt at the National Stock Exchange (NSE) and the ‘cost’ of such incidents for the financial markets, the ministry of finance (MoF) has asked the market regulator to share its finding based on the root cause analysis that NSE has been asked to submit within 21 days.
FM Sitharaman held a meeting on Thursday to discuss the issue with key secretaries and SEBI chairman Ajay Tyagi, who is understood to have participated through video-conferencing. We learn that secretaries from the department of economic affairs (DEA), dept of financial services (DFS), department of investment and public asset management (DIPAM) and the revenue secretary were present in the meeting.
According to sources, the SEBI chief is understood to have informed the ministry about steps taken by the market regulator in connection with the outage. SEBI had asked NSE to explain reasons for not migrating trading to its disaster recovery site. It had also asked for a detailed root cause analysis within 21 days from NSE on the 24th February trading halt.
Earlier this week, speaking at a virtual conference on Civil Accounts Day, Ms Sitharaman had emphasised on the need for upgrading the processes in line with the new technologies.
Noting that glitches and faults turn up even in cases where there is 'fool proof' security, she says, "In the NSE where there was a glitch, a kind of technology driven glitch, nobody could have anticipated it...but that has cost us immensely and lessons are being learnt."
On 24 February 2021, NSE had to suspend trading for nearly four hours after a technical glitch affected the links from the telecom service-providers. The glitch occurred as rates on NSE stopped updating at 10.08am which led to closure of the futures & options (F&O) segment by 11.40am and cash market by 11.43am. It affected online risk management system, due to which market functioning had to be halted, NSE had said.
NSE had informed that trading was halted at 11.40am due to 'issues with the links with telecom service providers'. There was an issue with live ticks for NSE indices like Nifty 50, Nifty Bank, and others across brokers.
"NSE has multiple telecom links with two service providers to ensure redundancy and we have received communication from both the telecom service providers that there are issues with their links due to which there is an impact on NSE system," a spokesperson from NSE had said.
"The trading halt continued till 3.30pm. In view of the exceptional situation arising out of the trading halt, it was decided to extend the trading hours to 5pm from 3.30pm at NSE, BSE and Metropolitan Stock Exchange of India Ltd (MSE)," SEBI had said in a statement.
Next day, SEBI even claimed that the its framework of interoperability worked on past Wednesday. It says its framework of interoperability "facilitated market participants to continue their transactions at other stock exchanges, thereby allowing them to seamlessly trade or square off their existing positions."
"The same is evident from the fact that the trading turnover at BSE in equity segment jumped to Rs40,600 crore on 24th February as compared to an average daily trading turnover of about Rs5,200 crore during the previous 30 days," SEBI added.
But there is a difference of opinion on whether the interoperability worked.
Meanwhile, the Association of National Exchanges Members of India (ANMI) has raised several serious questions on the 24th February trading halt at the NSE. In a letter to market regulator SEBI, the association alleged that NSE had knowledge of the situation at the initial trading hour but it did not take any steps. Further, due to delayed communication from NSE while informing members about reopening of the market, investors suffered huge monetary losses, ANMI says.
Separately, the Bombay Stock Exchange Brokers Forum (BBF) has urged exchanges and the market regulator not to levy penalty for short collection of margins from clients for the 24th February trading halt at NSE.
In a statement, Uttam Bagri, chairman of BBF, says, "...our members have reported that there are multiple cases where there would be potential short collection of peak and end of day margins from the clients. As you are aware, the same has penalty implications. We therefore request that for margin collection reporting for 24 February 2021, no penalty be levied in case of short collection of margins due to the extraordinary circumstances."
NSE, which faced a severe outage past Wednesday, has suffered at least nine serious glitches in since July 2017, that is the past three and half years.